Indonesia’s mining exports in limbo

Indonesia’s metal ore and concentrate exports have ground to a complete halt, government officials said on January 24, signalling the turmoil in the mining sector after a ban on ore shipments and an export tax were imposed nearly two weeks ago, Reuters reported.

Southeast Asia’s biggest economy introduced a controversial ore export ban on January 12, although last-minute amendments aimed to ease the impact of the export ban on miners like Freeport-McMoRan Copper & Gold and Newmont Mining Corp. They now face a progressive export tax on concentrates.

Freeport Indonesia and Newmont are in talks with the government over the new rules and are yet to resume exports since the new tax was introduced, while the Mineral Entrepreneurs Association has filed a legal challenge against the ore export ban.

Under the new regulation, concentrate exports are allowed to continue for some minerals, including copper, lead, iron ore, zinc and manganese, though with different purity rules attached. Concentrates are an intermediate product between ore and metal, enriched with minerals as a result of processing.

The surprise and last-minute inclusion of an escalating export tax on metal concentrates appears to have forced all other miners to stop shipments. Under the new rules the export tax for concentrates of lead, iron, zinc, ilmenite, titanium and manganese is 20 percent for 2014, but will rise to 60 per cent by the second half of 2016.

Indonesia is also the world’s biggest exporter of nickel ore, refined tin, thermal coal, and home to the fifth-largest copper mine and top gold mine. Freeport and Newmont produce 97 per cent of Indonesia’s copper. Indonesia’s iron ore shipments to China jumped 72.5 percent last year to 17.6 million tonnes. The country controls around 12-16 per cent of global bauxite supplies, with China again a major buyer.

Indonesia-based miners that process some or all of their metal production through smelters, like nickel producers PT Aneka Tambang and PT Vale Indonesia Tbk, have escaped the full impact of the new rules.

The long-planned ore ban aims to eventually boost Indonesia’s profits from its mineral wealth by forcing miners to process their ores before export. But there are fears a short-term cut in foreign revenue could widen the current account deficit, which has undermined investor confidence and hurt the rupiah currency. The ban is expected to cut government revenue by as much as $820 million this year, the finance minister has said.

The average value of Indonesia’s ore and concentrate exports was about $500 million per month from January to October 2013, according to the central bank. Thousands of mine workers had already been laid off ahead of the ban, sparking protests in Jakarta.

Indonesia’s metal ore and concentrate exports have ground to a complete halt, government officials said on January 24, signalling the turmoil in the mining sector after a ban on ore shipments and an export tax were imposed nearly two weeks ago, Reuters reported.

Southeast Asia’s biggest economy introduced a controversial ore export ban on January 12, although last-minute amendments aimed to ease the impact of the export ban on miners like Freeport-McMoRan Copper & Gold and Newmont Mining Corp. They now face a progressive export tax on concentrates.

Freeport Indonesia and Newmont are in talks with the government over the new rules and are yet to resume exports since the new tax was introduced, while the Mineral Entrepreneurs Association has filed a legal challenge against the ore export ban.

Under the new regulation, concentrate exports are allowed to continue for some minerals, including copper, lead, iron ore, zinc and manganese, though with different purity rules attached. Concentrates are an intermediate product between ore and metal, enriched with minerals as a result of processing.

The surprise and last-minute inclusion of an escalating export tax on metal concentrates appears to have forced all other miners to stop shipments. Under the new rules the export tax for concentrates of lead, iron, zinc, ilmenite, titanium and manganese is 20 percent for 2014, but will rise to 60 per cent by the second half of 2016.

Indonesia is also the world’s biggest exporter of nickel ore, refined tin, thermal coal, and home to the fifth-largest copper mine and top gold mine. Freeport and Newmont produce 97 per cent of Indonesia’s copper. Indonesia’s iron ore shipments to China jumped 72.5 percent last year to 17.6 million tonnes. The country controls around 12-16 per cent of global bauxite supplies, with China again a major buyer.

Indonesia-based miners that process some or all of their metal production through smelters, like nickel producers PT Aneka Tambang and PT Vale Indonesia Tbk, have escaped the full impact of the new rules.

The long-planned ore ban aims to eventually boost Indonesia’s profits from its mineral wealth by forcing miners to process their ores before export. But there are fears a short-term cut in foreign revenue could widen the current account deficit, which has undermined investor confidence and hurt the rupiah currency. The ban is expected to cut government revenue by as much as $820 million this year, the finance minister has said.

The average value of Indonesia’s ore and concentrate exports was about $500 million per month from January to October 2013, according to the central bank. Thousands of mine workers had already been laid off ahead of the ban, sparking protests in Jakarta.